It is a very complex situation where the companies which came into existence in an aspire to grow higher with the passage of each day, in fact, each second, ‘turn-off’ their entire business either voluntarily or by the Tribunal’s involvement. The statutory provisions of the winding up and its procedure are dealt under Chapter XX Sections 270 to 378 of the Companies Act, 2013 (substitute of the old Companies Act, 1956).
Introduction to the concept: – If incorporation is the process of bringing the company into existence, then winding up is the process of bringing an end to the existence of that so-called artificial person viz. Company. A company cannot die a natural death. It has an indefinite lifespan, but if such reasons have emerged which make it desirable to bring an end to its corporate life, then necessary legal mechanisms have to be put into operation to get it done. This mechanism is the process of winding up. It is a process by which the properties of the company are administered for the benefit of its members and creditors. The person appointed for administering the assets and liabilities is called ‘Liquidator.’ In case of compulsory winding up, the arbitrator or liquidator is appointed by the Tribunal under section 275 of the Act; or, in case of voluntary winding up, the liquidator is appointed by the company itself under section 310 of the Act. Winding up is also referred to as ‘Liquidation.’ On liquidation, the company’s name is deleted from the list of companies by the Registrar of companies and the same is published in the official gazette.
Modes of Winding Up Section 270 of the Companies Act, 2013 provides for two modes of winding up;
(1) Winding up by Tribunal (i.e., compulsory winding up);
(2) Voluntary winding up.
(3) creditor’s voluntary winding up
(1) Compulsory winding up: –
I. The petition is filled before the Tribunal either by the company, or by any creditor(s), or by contributory, or by the registrar, or any person authorized by the Central Government on that behalf (Sec. 272).
II. In this case, the Tribunal, at the time of passing the order of winding up, appoints an official liquidator or the liquidator from the panel maintained by the Central Government.
III. The official liquidator can be removed by the Tribunal on the grounds mentioned in Sec. 276.
IV. The order of winding up of the company shall operate in favor of all the creditors and all contributors of the company as if it had been made out on the joint petition of creditors and contributors. (Sec. 278)
(2) Voluntary winding up.:- No appeal is filled before the Court. In this, the company passes the special resolution in its meeting; or it passes a general resolution in case of expiry of the period of its duration (Sec. 304). The company appoints the company liquidator from the panel prepared by the Central Government for the purpose of winding up (Sec. 310). The company liquidator can be removed by the company (if the company appoints it), or by the creditors (if the creditors appoint it) on the grounds mentioned in Sec. 311.
(3)Creditor’s voluntary winding up – winding up takes place in case when the company is not in a position to pay its debts. Meeting of the members and creditors is called. No declaration of solvency is made. The liquidator, in fact, is appointed by the creditors and remuneration is fixed by the committee of inspection. The liquidator exercise powers with the sanction of the Tribunal. Meeting of members and creditors is called when the proceeding for winding up has been completed.
Grounds for winding up by the Tribunal:-
(a) Inability to pay debts: Sub-section (2) of section 271 provides that the inability to pay debts.
(b) Special Resolution: The Company may by special resolution resolve that it be wound up by the Tribunal.
(c) Against National interest: If the company has acted against the interest of sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality.
(d) Failure of Scheme: If the scheme of revival and rehabilitation is not approved by the creditors, then the company administrator shall submit a report to the Tribunal within 15 days, and the Tribunal shall order for the winding up of the ill company.
(e) Devious and unlawful affairs: If on an application made by the Registrar or any other person authorized by the Central Government by notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a devious manner, or the company was formed for deceiving shareholders and unlawful purposes or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound-up; then in such a situation, the Tribunal may, on a petition filed by an authorized person, pass an order for the winding up of the company.
(f) Default in filing financial statements: If the company has made a default infilling with the Registrar its financial statements or annual return for immediately preceding five consecutive financial years [Sec. 271(1) (f)].
Work of lawyer: – the process of winding up of a company is a lengthy and tiring process though tribunal and liquidator clear the work of winding up. But still documentation and shareholders right are many times avoided. That causes financial losses to shareholders. It’s necessary to stand up for the rights of shareholders right. So that any fraud or undue loss doesn’t cause to shareholders.
By Ankur Sharma